1

Enterprise Resource Planning (ERP)

Group 6

Zhenyu Zhu (Adam)

Rich Stansfield

John Palmer

Ryan Kramme

2

What will we cover today?• The Background Knowledge of ERP--Adam• One case study of failed ERP implementation

(Raskas Foods)--Rich• One case study of successful ERP implementation

(Cisco Systems)--John• ERP Best Practices / Summary--Ryan

3

Background of ERP

• History of ERP• What is ERP?• Major ERP suppliers• Why companies want to implement ERP• ERP implementation procedures

4

History of ERP• 1960's-focused on Inventory control issues • 1970's focused on MRP (Material Requirement

Planning) systems

• 1980's focused on the concept of MRP-II (Manufacturing Resources Planning) which was an extension of MRP

• Early 1990's MRP-II was further extended to cover areas like Engineering, Finance, Human Resources, Projects Management, etc.

• Beginning of ERP as we know it today

5

ERP

MRP II MRP

Inventory control

1960’s 1970’s 1980’s 1990’s

History of ERP (Cont.)

6

The Concept of ERP • ERP software ties all departments in a company

together into one common system • ERP allows Information Technology to integrate

with your company's core business processes to achieve specific business objectives

– Information Technology– Core Processes – Specific Business Objectives

7

ERP

Enterprise Integration

Sales

Treasury

Inventory

HR

Manufacturing Units

Purchase

8

The Relationship Among Three Components of ERP

Business management practice

Information Technology integrates with your company's core business processes

Specific business objectives

9

ERP Market Space• $16 Billion Total Annual Spending (2002)

[The Steady Stream of ERP Investments Fenella Scott, Jim Shepherd AMR research August 24, 2002]

• U.S. Federal Government spending on ERP and related systems and services will increase at a compound annual growth rate of 13%

• 2002 = $3.5 Billion• 2007 = $6 Billion

[http://www.input.com/article_printver.cfm?article_id=606] (Viewed March 18)

10

Major ERP SuppliersThe Top Five ERP Vendors

1. SAP2. Oracle Corporation3. Peoplesoft, Inc.4. JD Edwards & Company5. Baan International

http://erp.ittoolbox.com/pub/erp_overview.htm#r2 (Viewed March 18, 2003)

Microsoft purchased two ERP vendors; Great Plains in 2001 and Navision in 2002

http://erp.ittoolbox.com/documents/document.asp?i=1662 (Viewed March 18, 2003)

11

Market Share for ERP Suppliers

12

Different Markets for Different Providers

• 11% of the companies surveyed are still using homegrown (legacy) applications

• SAP is the market leader in Manufacturing companies• Oracle shows strength in both Manufacturing and

Service companies• PeopleSoft is the market leading is Services companies

[The Steady Stream of ERP Investments Fenella Scott, Jim Shepherd August 26, 2002 AMR Research]

13

Leading ERP Companies

01020304050

ManufactureERP

05

10152025

ServiceERP

0

20

40

General Market Shares

SAP

Oracle

Peoplesoft

14

Benefits of ERP

• Improve productivity

• Increase customer demand (sales)

• Increase competitive advantage

• Increase market share

• Position company for sale

15

improving productivity

31%

customer demand

24%

competitive advantage

16%

others29%

www.amrresearch.com/Research/Alerts/Pdf/020826alert14775.pdf (viewed March 16, 2003)

Business Drivers for ERP

16

How Does ERP Improve the Business?

ERP helps improve information sharing, enhance business performance, and promote service

efficiency

1. Allow companies to better understand their business. 2. Helps companies standardize business processes and

more easily enact best practices.3. More efficient processes enable companies to

concentrate their efforts on serving their customers, maximizing profit, and building a competitive advantage.

17

ERP Cost/Benefit Analysis• Average Cost for ERP

Among the 63 companies surveyed—including small, medium and large companies in a range of industries—the average cost for an ERP implementation was $15 million.

• Average Payback for ERP (Time & Dollars)

Among the 63 companies surveyed, it took eight (8) months after the new ERP system was implemented to see any benefits. The median annual savings from a new ERP system was $1.6 million.

http://www.cio.com/research/erp/edit/erpbasics.html#erp_abc (viewed March 24, 2003)

18

ERP Strategies

1. The Big Bang-companies cast off all their legacy systems at once and install a single ERP system across the entire company.

2. Franchising-Independent ERP systems are installed in each unit, while linking common processes, such as financial bookkeeping, across the enterprise.

3. Slam Dunk-ERP dictates the process design in this method; where the focus is on just a few key processes, such as those contained in an ERP system's financial module. The slam dunk is generally for smaller companies expecting to grow into ERP by initially purchasing only a few modules.

19

ERP Implementation Procedure

Steps for ERP implementation

• Cost analysis• Blueprinting of Business Processes• Staff Training• Integration• Data Conversion• “Going Live” with ERP

20

ERP: Winner’s Legend, Loser’s

Nightmare

While 9 out of 10 ERP implementations failed in India, the one success story produced such spectacular results that it was enough to keep the entire ERP market alive!

http://216.239.57.100/search?q=cache:ji6Ym4n6lLYC:www.expresscomputeronline.com/20020107/focus6.shtml+ERP+market+statistic&hl=en&ie=UTF-8 [2002.Jan 7]

21

Case Study #1

Failed ERP Implementation at Raskas Foods, Inc.

22

Raskas Foods, Inc.

• One of the 150 Largest Privately held companies in St. Louis

• Purchased by Schreiber Foods in October, 2002

[St. Louis Business Journal, April 2002]

23

Raskas Foods Background

• Founded in 1888

• Nations first private label manufacturer of cream cheese for retail grocery distribution

• Sales of over $280 million in 2002

• 3 Manufacturing Plants

24

Raskas Foods, Inc.• Dr. Heschel Raskas, President and CEO• Ed Thibeault, Sr. Vice President – Marketing and

Sales• Rich Coker, Sr. Vice-President – Operations• Rich Scheuerman, Sr. Vice-President – Finance

25

Raskas Foods, Inc.

• Owners• Marketing• Operations• Finance

Four Factions to Satisfy:

26

Owners• Seven owners, all related• Three were employed by Raskas• Two had been looking to sell Raskas for over ten

years• Wanted to position Raskas Foods for sale

27

Marketing• Finance helped Marketing get Gross-to-Net and

Cognos BI software• ERP wouldn’t do anything for them• Since Finance helped Marketing get their programs,

Marketing was willing to back Finance on the ERP project – provided that Marketing wouldn’t have to supply any bodies to the implementation process

28

Operations• Operations has wanted a new plant since 1994• Operations liked their “homegrown” Excel based

system• Operations traded support for the ERP system in

exchange for future support from Finance for a new plant – as soon as certain production levels were met.

29

Finance• Finance felt about the legacy Accounting system

that “the wheels were about to come off the cart”• Wanted an entire package…”It’s time to get into

the Big Leagues”• Just came off successful implementation of Gross-

to-Net and Cognos for Marketing

30

The ERP Package

• Approved in early 1999• Adage ERP package• SCT consultants• Budgeted $2.2 million• Anticipated 6 months to 1 year to complete• Waited until after the Y2K problem to implement• Completed the Blueprint of Business Processes• Training for IS

31

Project Personnel

• Mike Doyle (Finance), Project Manager• Cliff Thomason (Finance), Project Facilitator• John Lazare (IT), Project Lead• Wayne Dixon, Director - IT, was left out

32

Problems

• Implementation started in April of 2000• Employees found that the ERP system didn’t do

things the same way they did things• Changes approved to keep Operations involved• Stopped for fall Busy Season September 2000

33

Startup-January, 2001

• No momentum restarting• Had to upgrade the software to the latest release• Budget increases to $3.3 million

34

Large Sales Increase

• The number two private label Cream Cheese manufacturer develops quality and delivery problems

• Spring 2001, Operations gets approval for a new plant

• Operations pulls key people from ERP for new plant startup

35

More Problems….

• Work on the ERP implementation stopped for fall busy season again

• By February, “something was wrong.”• March 2002, lack of Upper Level Management

interest in ERP• April 2002, a successful ERP implementation was

no longer necessary

36

Lessons Learned• The budget will increase when changes are made• Senior level personnel have to stay involved• Everyone involved in the project has to be 100%

dedicated to the project• The people involved in the ERP project have to be

“key” employees• ERP has to be the number one priority

37

Case Study #2

Successful ERP Implementation at Cisco

Systems, Inc.

38

Cisco, NOT Sysco!Just to clarify, the company I will be talking about today is not the food company Sysco, it is Cisco

Systems, Inc.

YES NO

39

Company Background

• Worldwide leader in networking for the Internet• Provide Internet Protocol-based (IP) networking

suite of solutions• Cisco solutions are in most corporate, education,

and government networks worldwide

Corporate Overview

http://newsroom.cisco.com/dlls/company_overview.html (viewed March 14, 2003)

40

Company Background-Cont.

• Founded in 1984 by a group of computer scientists from Stanford University

• Publicly traded starting in 1990 (NASDAQ: CSCO)– $13.71 per share (as of April 4, 2003 4:00 PM)

• 34,987 employees (as of February 2003)

http://newsroom.cisco.com/dlls/corpfact.html (viewed March 14, 2003)

Cisco Systems, Inc. Annual Report 2002, page 1

41

Company Background-Cont.• Global company (HQ in San Jose, CA)

• 2002 Net Sales of $18.9 Billion

http://newsroom.cisco.com/dlls/corpfact.html (viewed March 14, 2003)

Cisco Systems, Inc. Annual Report 2002, page 1

42

John Chambers-President & CEO of Cisco Systems, Inc.

Cisco Systems, Inc. Annual Report 2002, page 3

43

Core Product Offering• Cisco provides the broadest line of solutions for

transporting data, voice, and video within buildings, across campuses, or around the world

• Primary products are “routers” and “switches”• Main competitors are 3Com and Dlink• Market share leader with over 75% of the market

http://newsroom.cisco.com//dlls/corpfact.html (viewed March 14, 2003)

Austin, Robert, “Cisco Systems, Inc.: Implementing ERP”, Harvard Business School

Online Case Study #9-699-022 (Rev: May 6, 2002)

44

Company Structure

• Centralized functional organization• Manufacturing, customer support, finance, human

resources, IT, and sales are centralized• Product Marketing and R&D are decentralized

into the following “Lines of Business”:– Enterprise (Large Corporations)

– Small / Medium Business

– Service Provider

Austin, Robert, “Cisco Systems, Inc.: Implementing ERP”, Harvard Business School Online Case Study #9-699-022 (Rev: May 6, 2002)

45

Time for a Change

• January 1993, Cisco was $500 million company running a Unix-based legacy software package

• CIO Pete Solvik saw the need for change

• Initially, Cisco avoided an ERP solution

Austin, Robert, “Cisco Systems, Inc.: Implementing ERP”, Harvard Business School Online Case Study #9-699-022 (Rev: May 6, 2002)

46

Pete Solvik-CIO

“We wanted to grow to a $5 billion-plus company. We were not able to make changes to the application

to meet our business needs anymore. The application had become too customized. The

software vendor did offer an upgrade but we knew even after the upgrades it would still be a package

for $300 million companies--and we’re a $1 billion dollar company.”

Austin, Robert, “Cisco Systems, Inc.: Implementing ERP”, Harvard Business School Online Case Study #9-699-022 (Rev: May 6, 2002)

47

Randy Pond-Dir. of Manuf.“We knew we were in big trouble if we did not do

something. Anything we did would just run over the legacy systems we had in place. It turned into an effort to constantly band-aid our existing systems. None of

us were individually going to go out and buy a package….the disruption to the business for me to go to the board and say ‘Okay, manufacturing wants to spend

$5 or $6 million dollars to buy a package and by the way it will take a year or more to get in….’ was too

much to justify.”Austin, Robert, “Cisco Systems, Inc.: Implementing ERP”, Harvard Business School

Online Case Study #9-699-022 (Rev: May 6, 2002)

48

The Final Straw

• System failure in January, 1994

• Company shut down for 2 days

• February, 1994 assembled team in charge of finding a suitable replacement application

• Decided on the Big Bang implementation strategy

Austin, Robert, “Cisco Systems, Inc.: Implementing ERP”, Harvard Business School

Online Case Study #9-699-022 (Rev: May 6, 2002)

49

Carl Redfield-SVP of Manuf.

“I knew we wanted to do this quickly. We were not going to do a phased implementation, we would do it

all at once. We were not going to allow a lot of customization either. Also, we wanted to create a

schedule that was doable and make it a priority in the company as opposed to a second tier kind of effort.”

Austin, Robert, “Cisco Systems, Inc.: Implementing ERP”, Harvard Business School

Online Case Study #9-699-022 (Rev: May 6, 2002)

50

“A Team Effort”

•Team consisted of internal resources (Cisco employees), consultant (KPMG), and ERP software vendor (Oracle)

Solvik said, “Our orientation in pulling people out of their jobs to work on the project was if it was easy then we

were picking the wrong people. We pulled people out that the business absolutely did not want to give up.”

Austin, Robert, “Cisco Systems, Inc.: Implementing ERP”, Harvard Business School Online Case Study #9-699-022 (Rev: May 6, 2002)

51

Software Vendor Selection

• 20 person team did extensive research on ERP providers

• 5 vendors in 2 days

• 10 days to draft RFP for vendors

• Visited vendor reference clients

• Scheduled 3 day onsite software demos

• Entire process took only 75 days!

Austin, Robert, “Cisco Systems, Inc.: Implementing ERP”, Harvard Business School

Online Case Study #9-699-022 (Rev: May 6, 2002)

52

Why Oracle?•Win-win situation for both Cisco and Oracle

Pond said, “Oracle wanted this win badly. We ended up getting a super deal. There are, however, a lot of strings

attached. We do references, allow site visits and in general talk to many companies that are involved in

making this decision.”

Austin, Robert, “Cisco Systems, Inc.: Implementing ERP”, Harvard Business School Online

Case Study #9-699-022 (Rev: May 6, 2002)

53

Project Approval• Target timeline was 9 months

• Projected cost was $15 million

• Largest capital project ever approved by Cisco

Pond said, “Before we even get the first slide up I hear the chairman speaking from the back of the room. He

says ‘How much?’ I said I was getting to it and he responded: ‘I hate surprises. Just put up the slide right

now.’ After I put it up he said ‘Oh my God, there better be a lot of good slides….”

Austin, Robert, “Cisco Systems, Inc.: Implementing ERP”, Harvard Business School

Online Case Study #9-699-022 (Rev: May 6, 2002)

54

Implementation Team

• Expanded from 20 to 100 members (See slide #55)

• Steering committee at top to ensure project visibility, sponsorship, and motivation

• Split into 5 key areas (Order Entry, Manufacturing, Finance, Sales/Reporting, and Technology)

• All areas consisted of internal Cisco

employees, KPMG consultants, and

Oracle consultants

Austin, Robert, “Cisco Systems, Inc.: Implementing ERP”, Harvard Business School Online Case Study #9-699-022 (Rev: May 6, 2002)

55

Cisco ERP Implementation Team StructureExecutive Steering

Committee

Project Management Office

Sales/Reporting TechnologyFinanceManufacturingOrder Entry

IT Lead

Business Lead

Business Consultants

IT Consultants

Users

Business Lead Business Lead IT Lead IT Lead

IT Lead IT Lead Business Consultants

IT Consultants

Business Consultants

IT Consultants

Users

Business Consultants

IT Consultants

Users

IT Consultants

Austin, Robert, “Cisco Systems, Inc.: Implementing ERP”, Harvard Business School Online Case Study #9-699-022 (Rev: May 6, 2002)

56

ERP Rollout

• Broke into phases called CRP’s (Conference Room Pilots)– CRP0 = Training and technical configuration– CRP1 = System works for each specific area– CRP2 = Modifications (red, yellow, or green),

continued training, and initial testing (See slide #57)– CRP3 = Full system testing “preparation to go live”

Austin, Robert, “Cisco Systems, Inc.: Implementing ERP”, Harvard Business School

Online Case Study #9-699-022 (Rev: May 6, 2002)

57

List of “Red” Modifications

• Packout-custom barcoding, queues, inventory, and shipping modifications

• Canada-separate set of books for separate currency• Product Configurator-enables Cisco to enter

“rules” for product ordering• OE Form-discounts, cost data, multinational

orders, etc.• Net Change Bookings-daily log of all order

activity

Austin, Robert, “Cisco Systems, Inc.: Implementing ERP”, Harvard Business School Online Case Study #9-699-022 (Rev: May 6, 2002)

58

Initial Challenges• Hardware failures• System instability• Software unable to handle initial volume

Solvik said, “I wouldn’t say the company hit a wall, but I would say we had major day to day challenges that needed to be solved quickly to avoid significant impact to the company.”

Austin, Robert, “Cisco Systems, Inc.: Implementing ERP”, Harvard Business School Online Case Study #9-699-022 (Rev: May 6, 2002)

59

Vendor Commitment• Team effort-overcame problems within 3 months

Solvik said, “So for about 60 days we were in complete SWAT-team mode, get this thing turned around. For example, the president of the hardware vendor was our executive sponsor. This vendor probably had 30 people on site at one point. They were all over it. They lost money on this big time. It was great for them to get such a great reference, but it was a tough experience for them. Remember we had bought a capability, so everything they did to add capacity was out of their own pocket.”

Austin, Robert, “Cisco Systems, Inc.: Implementing ERP”, Harvard Business School

Online Case Study #9-699-022 (Rev: May 6, 2002)

60

ERP Results• Project completed on-time (See slide #61)• Project completed on budget• Cisco ERP team bonus totaling $200,000• Overall successful systems replacement• Minimal company interference

Austin, Robert, “Cisco Systems, Inc.: Implementing ERP”, Harvard Business School

Online Case Study #9-699-022 (Rev: May 6, 2002)

61

ERP Implementation Dates• Project Kickoff• Prototype Setup Complete• Implementation Team Training• Process, Key Data, Modification

Designs Complete• Functional Process Approval• Hardware Benchmark and Capacity

Plan Validated• Critical Interfaces, Modifications

and Reports Complete• Procedures and End-User

Documentation Complete• CRP Pilot Complete-Go/No Go• End-User Training Begins• Data Conversion Complete• Go Live!

• June 2, 1994

• July 22, 1994

• July 31, 1994

• August 31, 1994

• September 30, 1994

• October 15, 1994

• December 1, 1994

• December 16, 1994

• December 22, 1994

• January 3, 1995

• January 27, 1995

• January 30, 1995

Austin, Robert, “Cisco Systems, Inc.: Implementing ERP”, Harvard Business School Online Case Study #9-699-022 (Rev: May 6, 2002)

62

Lessons Learned

• Recognized the problem & developed a realistic plan of attack

• Project was a high priority in the company• Upper management supported the project• All areas of the company were involved• Diligent vendor/consultant selection• Limited customization• Meet target implementation dates• Stayed within the initial project budget

Why was Cisco’s ERP Implementation a Success?

63

“Projects Do Fail. They Fail for Many Different

Reasons.”

Source: Thompson, Olin, “Who to Blame for Project Failure?”, www.Technologyevaluation.com,

Sept 20, 2002

64

ERP Best Practices

Let’s analyze what can increase our chances of a

successful ERP implementation

65

Characteristics of IT Best Practices

• Knowledge of business process and ERP is essential to becoming an informed buyer

• Effectively Communicate company goals to the Software Providers

• Multiple Bids/Proposals• Effectively Evaluate and Compare Bids• Active Leadership Role in Project

66

Knowledge is Power

• Thorough knowledge and understanding of the entire business process being effected

• Understand which (or all) business divisions are to be incorporated into your new ERP system

• Distinguish between Customized vs. Standard ERP Software

Source: Davenport, Thomas, “Putting the Enterprise into the Enterprise System”,

Harvard Business Review, July-Aug 1998.

67

Multiple Bids• Unlike most IT

functions an In-house bid is not normally an option

• Provide each potential provider with identical information

68

Comparing Bids• Make sure that you are

comparing Apples to Apples

• Decide which system will best fit your company’s needs

• Hire a third party consultant

Source: P.J. Jakovljevic, “The ‘Joy’ Of Enterprise Systems Implementations”, www.TechnologyEvaluation.com, July 8, 2002

69

Customization vs. Standard Application

• Decision depends on multiple factors– Company Goals

• Happy with Current Productivity?

• Desiring Change?

– Employee Willingness to Change

– “Implementing/Upgrading a enterprise system offers a good opportunity for enterprises to review their key business processes and resources.”

Source: P.J. Jakovljevic, “The ‘Joy’ Of Enterprise Systems Implementations”,

www.TechnologyEvaluation.com, July 8, 2002

70

Standard Application

• Cheaper

• Requires Company Operational Processes to Change

• Constantly requires Employees to Change

• “Vendors try to structure the systems to reflect best practices”

Source: Davenport, Thomas, “Putting the Enterprise into the Enterprise System”, Harvard Business

Review, July-Aug 1998.

71

Customization• Already an Industry Leader – No Major

Changes Needed• Adapt the Software to Business Functions

– Unique Business Operations• Less Change for Employees• More Expensive and Complex Implementation

Source: Davenport, Thomas, “Putting the Enterprise into the Enterprise System”, Harvard Business

Review, July-Aug 1998.

72

Contract Negotiations• Detailed

– Time Frame– Price

• “Users are strongly advised to require fixed time and cost contract commitments”

Source: P.J. Jakovljevic, “The ‘Joy’ Of Enterprise Systems Implementations”,

www.TechnologyEvaluation.com, July 8, 2002

73

Implementation:Big Bang vs. Phased

Approach• Big bang has attributed to

a number of failures• “Once and its done”

theory - False

• Phased approach-new parts are introduced incrementally.

• Start with mature parts that need the least customization

• Builds momentum, support and enthusiasm

Source: P.J. Jakovljevic, “The ‘Joy’ Of Enterprise Systems Implementations”,

www.TechnologyEvaluation.com, July 8, 2002

74

All the previous factors discussed can effect the implementation of an

ERP system, however one factor has the ability to

outweigh all other circumstances….

75

Employees

• Top Management

• Project Leader

• Project Champion

76

Top Management• “The person at the top of the

organization can stop or fix most of these problems before they derail the project.”

• Enthusiasm “Trickles Down”• Top Management, “If they

know I care, they care.”

Source: Thompson, Olin, “Who to Blame for Project Failure?”,

www.Technologyevaluation.com, Sept 20, 2002

77

Project Manager• “The best person for the job . .

Cannot be spared from their current role.”

• Relieved of all previous job duties.

• Understand the whole business process.

Source: Thompson, Olin, “Who to Blame for Project Failure?”,

www.Technologyevaluation.com Sept 20, 2002

78

Project Champion• Typically an influential

employee-not a member of the management team.

• Created in the Phased In approach after seeing positive results.

79

Strategies for ERP Implementation

• Background Research• Use consultant to:

– Review Business Process– Narrow down vendors– Evaluate proposals

• Standard Application• Strict Contract• Phased Implementation• Employee Support – Starting at the Top

80

Questions?